The document discusses the differences between a fixed charge receiver and a Law of Property Act 1925 receiver. A fixed charge receiver is appointed by the lender under the terms of a mortgage deed and acts as an agent for the borrower, while an LPA receiver is appointed under the limited powers granted in the LPA 1925. The fixed charge receiver is responsible for managing and selling the property to repay the lender, but also has residual duties to the borrower such as achieving the best sale price. The document outlines the receiver appointment process and responsibilities in recovering the secured asset for the lender.

1. IRONING OUT LENDER AND BORROWER
MISCONCEPTIONS
by Anthony Salata
Initially published inCorporateRecoveryandInsolvency
When the economy is under stress property
values are soon affected. Borrowers fall behind in
interest payments and quite quickly the LTV is no
longer at the prescribed level. At times like this
the bank’s business support teams turn to their
restructuring consultants whilst their lawyers are
instructed to carry out security reviews.
In these situations the lender may
feel that the borrower is not best
placed to make decisions in order
to maintain or optimise the value
of the asset, and he may wish to
remove control of the property from
the borrower in order to replace him
with a custodian who will protect
the lender’s interests and ultimately
realise the asset on his behalf.
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PROPERTY LENDING SOLUTIONS
Fixed charge receivership
KEY POINTS
• There are very clear differences between
a receiver appointed under the Law of
Property Act 1925 (an“LPA receiver”) and a
fixed charge receiver appointed under the
terms of a mortgage deed.
• A fixed charge receiver is an appointee of
the lender but is usually the agent for the
borrower.
• Many borrowers believe, mistakenly, that a
receiver should resign if the borrower has
been successful in settling the arrears.

2. Fixed price receivership
Partnership. Performance. avisonyoung.co.ukPROPERTY LENDING SOLUTIONS
SOME BASICS
The lender requiring such a custodian may
appoint a receiver, either under the terms
of a mortgage deed or pursuant to the
specific powers of the Law of Property Act
1925 (LPA 1925). In the former case the
receiver is known as a fixed charge receiver
and in the latter case as an LPA receiver.
In practice the terms LPA and fixed charge
receiver are often used interchangeably
to cover any receiver appointed over a
fixed asset. There are, however, very clear
differences. The power granted to an LPA
receiver arises from s 109 of the LPA 1925
which provides the following limited
powers and obligations:
“The power to demand and recover all
the income (which will include rent)
of which he is appointed receiver, by
action, distress or otherwise and he can
give valid receipts for that income.
The receiver shall if so directed in writing
by the mortgagee, insure and keep
insured against loss or damage by
fire, out of the money received by him
from any building effects or property
comprised in the mortgage whether
affixed to the freehold or not, being of
an insurable nature.”
These powers are, however, of minimal
value since there is no power of sale and,
of course, the main requirement of the
lender is to recoup his capital by way of a
realisation. It is therefore more common
for a receiver to be appointed under
the terms of a mortgage deed, which if
properly drafted will include:
• the power of sale;
• the power to collect rent;
• the power to grant leases;
• the power to borrow funds;
• the power to enter into contracts
including building contracts.
In practice, appointments are often a
hybrid since they will refer both to the
terms of the mortgage deed as well as to
the LPA 1925.
A receivership appointment under the
LPA 1925 becomes possible when the
lender is entitled to exercise the power of
sale conferred by that Act (s 109).
A receivership appointment under a
mortgage deed becomes possible when
certain conditions prescribed in the deed
are met. These often include a breach of
the facility and a requirement that the
lender 'make demand' or the borrower
invites the lender to appoint a receiver.
Lenders will usually 'make demand'
(in accordance with the terms of the
mortgage deed) on the borrower prior
to appointing, which they may do within
a very short period of time (occasionally
within minutes, depending upon the
circumstances) after making demand.
Commonly, the breach of the facility may
be because of arrears of interest payments
but there is a range of possibilities, which
may include:
• arrears in payment of interest and
repayment of capital;
• breach of LTV;
• breach of planning (particularly
relevant in the case of funding of a
development);
• breach in respect of another loan
between the lender and the borrower
where there is an all monies charge.
RESPONSIBILITIES OF
THE FIXED CHARGE
RECEIVER
The fixed charge receiver occupies a
novel legal position. He is an appointee
of the lender but is usually the agent
for the borrower. His responsibility is to
manage the property, collect rent and to
subsequently realise the asset.
Following sale he will pass the surplus
net of costs to the borrower. His prime
responsibility therefore is his duty of care
to the lender. The receiver, however, also
has a residual duty of care to the borrower
and, in particular, has an obligation
to manage the property with“due
diligence”and sell it at the best reasonable
price, taking into account all of the
circumstances. Note that a receiver’s duty
to sell the property at the best reasonable
price does not extend so far as to require
him to delay a sale, or to take steps or
incur costs (for example, by applying
for planning permission) with a view to
enhancing the prospects for the sale, as
distinct from taking all reasonable steps to
achieve a successful sale (Silven Properties
Limited & Anor v RBS & Ors [2003]).
RELATIONSHIP
BETWEEN THE FIXED
CHARGE RECEIVER
AND THE BORROWER
The fixed charge receiver as agent for the
borrower has the capacity to enter into
contracts in the name of the borrower.
Consequently, the borrower’s contractual
rights in respect of the property are
suspended for the duration of the
appointment. This is a common cause of
contention as borrowers are frequently
confused about this arcane area of law and
tend to wrongly assume that, since the
receiver is an agent, he should be taking
instructions from them.
The Receiver is only appointed over the
property asset. He has no power to deal
with the borrower’s fixtures and fittings
and chattels.
Note that if the borrower is an individual
and has been declared bankrupt or is a
company and has gone into liquidation
then the receiver will no longer be acting
as agent of the borrower. On termination
of the agency, the receiver will usually
become a principal (ie not an agent at
all), and does not automatically become
agent of the lender (American Express
International Banking Corp v Hurley [1985]).
RELATIONSHIP
BETWEEN THE FIXED
CHARGE RECEIVER
AND THE LENDER
Once the lender has exercised his power
and appointed the receiver he, like the
borrower, will, in theory, have no control
over the subsequent actions that the
receiver undertakes. In particular, he
cannot instruct the receiver and vice versa
the receiver must take care not to seek
instructions from the lender. If a situation
arises where it appears that the lender has
exerted control over the receiver then the
appointment may become vulnerable to a
claim that the receiver is in fact the agent
of the lender, as opposed to the borrower
(Standard Chartered Bank Ltd v Walker
[1982]). The protections conferred on the
lender by the receiver acting as agent of
the borrower will be lost with potentially
serious consequences.

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Notwithstanding the above, in practice the
receiver cannot move very far without the
support of the lender since the lender will
be funding the receivership. Furthermore,
at the point that the transfer is entered
into the lender’s cooperation is required
and he will be required to provide the
discharge in order to release the property
from his security.
WHO CAN BE
APPOINTED?
There are no special requirements for the
potential receiver but the prospective
appointee is likely to be either an IP or a
chartered surveyor with long experience
of receivership. Although no qualifications
are needed it is becoming increasingly the
case that lenders expect their appointees
to be Registered Property Receivers and
Fellows of Nara. See note below.
PRE APPOINTMENT
REVIEWS
Where adequate time is available the
lender will require reports prior to making
the appointment.
Normally the lender will have briefed
the potential receiver some time ahead
of the likely appointment and will have
instructed him/her to inspect the property
and prepare a Property Options Report.
This review will recite all of the relevant
facts concerning the property but it is not
simply a valuation and it is certainly not
a Red Book Valuation. It is intended to be
a plan of action. It will set out a strategy.
Although it is not a valuation it will set out
a range of possible values and a menu of
possibilities. These pre-investigations will
highlight issues such as possible planning
and building control problems. The report
will note who is in occupation and what
the terms of the leases are, should there
be any and it will consider environmental
issues such as flooding and contamination
risks. It will also compare the office copy
entry extracts with what is visible on site
to ensure that the boundaries are correctly
delineated. Above all it will contain
recommendations as to how to achieve
the optimum realisation in the light of
current market conditions.
This preview of the asset and its key
features should also be an opportunity
for the prospective receiver to state
whether he or she is prepared to take up
an appointment. In view of the personal
nature of the obligations the receiver
needs to take care since at this stage a full
risk assessment will not have been put in
place and he will not yet know what other
problems might exist. For example, if the
building is destroyed by fire and people
are injured and it subsequently becomes
apparent that an enforcement notice
had been served by the Fire Service then
the receiver could be liable for criminal
negligence.
It is helpful if the prospective receiver can
be provided with copies of earlier historic
valuation reports which may give useful
information and which may need to be
considered in relation to whether the
lender had been properly advised by the
original valuer when the loan was first
agreed.
At the same time, solicitors will be
carrying out a security review. They will
be checking that in the case of corporate
borrowers the charge has been registered
at Companies House and that the
mortgage deed is appropriately worded
and is enforceable and that it gives the
receiver all of the powers that he will need.
The solicitors will also report on other
charges and comment on any priority
arrangements in place between two or
more lenders. While in most cases the
receiver is appointed pursuant to the first
charge, appointments can be made under
subsequent charges. The lawyer will also
ascertain whether the borrower, if an
individual, has been declared bankrupt or,
if a company, it has gone into liquidation
or administration. If the borrower does go
into a bankruptcy or liquidation then (as
discussed above) the receiver
will not act as agent of the borrower.
In addition, the moratorium conferred
by an administration will require either
the consent of the administrators or the
permission of the court to an appointment
of a receiver.
RECEIVER’S FEES
The Law of Property Act 1925 provides
that the receiver’s commission (which
includes remuneration and all costs,
charges and expenses incurred by him)
should amount to no more than 5% of the
gross sum realised. In practice, however,
since most appointments are made under
the terms of the mortgage deed, the

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mitigated by providing them with a brief
note explaining in non-technical language
what the role of the receiver is.
The following should be amongst the
standard first actions on the part of the
receiver. If the appointee is an IP then
of course the functions will be divided
between him or her and the surveyor that
he or she is instructing.
• Notify the borrower of the
appointment in writing and
depending on the circumstances of
the case invite them to a meeting.
• Notify any occupants of the
appointment in writing and inform
them of the property management
arrangements that are now being put
in place.
• If the property is occupied investigate
whether there are leases and check
with the lender whether they have
been consented to.
• Initiate a property management
system.
• If the property is vacant change the
locks and ensure that the property
and the site are secure. Arrange for the
plumbing to be drained down.
• Contact HMRC to enquire about the
VAT status of the property.
• Open a dedicated receivership bank
account and agree an overdraft facility
with the lender.
• Make contact with other charge
holders.
• In the event that specialised
professional advice is needed,
assemble your team of advisers.
ADDING VALUE
A key aspect of receivership is to explore
the possibility of adding value. This
may take the form of building out a
semi-completed development, resolving
outstanding planning or building control
problems or re-negotiating leases or
simply obtaining vacant possession.
In a high proportion of receivership cases
the present value of the property will be
significantly less than the outstanding
debt so maximising value is essential
in order to mitigate that loss. Indeed
very often the reason for making the
appointment is the fact of the borrower’s
inability to properly deal with the
property in order to optimise value.
In these situations it is essential that a
receiver is appointed that has experience
in development work and that he has
a proven team of experts working
under his guidance. It is common for
an appointment to be made just weeks
before a planning permission is about
to expire and so speed is often of the
essence.
There are also situations where the
borrowers have an interest in added value
either because they believe that the value
added would create equity for them or
because it would reduce the lender’s claim
on their personal guarantees; however,
the receiver does not have an obligation
to pursue action which may ultimately
result in an increase in a property’s value.
His or her responsibility is to deal with the
property as it is and obtain the best price
reasonably obtainable for the property in
its present circumstances.
FACILITATING A
REFINANCING
The receiver’s role is to recoup the lender’s
capital but that may not necessarily
mean a sale of the property. Frequently a
receiver can perform a useful function in
facilitating a refinancing operation.
TERMINATION OF THE
APPOINTMENT
A receiver may resign with the consent
of the lender without any particular
formality. A simple letter to the lender
will suffice but more commonly the
appointment will come to an end if the
loan is redeemed by way of a refinancing
or the asset is realised with a subsequent
distribution of the net funds according to
the ranking of the various charges.
Following the realisation the receiver
must, among other matters, settle
outstanding invoices, cancel insurance
and finally, if the borrower is a company,
submit returns to Companies House and a
resignation form (Form LQ02).
Many borrowers believe, mistakenly, that a
receiver should resign if the borrower has
been successful in settling the arrears. This
is perhaps one of the misunderstandings
that could be overcome if receivership
was better explained to the borrower at
the time of the appointment.
WHY APPOINT A
FIXED CHARGE
RECEIVER?
Receivership is often the best course for
the lender to choose, dependent upon
the circumstances of the default and
nature of the property.
If as an alternative a lender takes
possession it becomes directly
responsible for the property and any
liabilities that run with it. For example,
if the property is tenanted the lender
puts himself in the position of a landlord.
Therefore, the advantage of appointing a
receiver who is agent for the borrower is
that the lender distances itself from the
borrower, leaving the receiver to take on
the potentially onerous obligations.
The mortgagee in possession route does
have one particular plus point since a
transfer by way of a TR2 will allow him to
overreach subsequent charges; although,
a lender may in any event execute a TR2
on a sale by a receiver, if required.
Administration is most commonly used
when a business has a value and more
extensive powers are required, for
example to deal with claims of other
creditors. It also has the advantage of
protecting the assets from other creditors
by virtue of the moratorium. If the
property is of a significant value then
the administrator will normally instruct
a surveyor to advise him. Alternatively,
there is no reason why a fixed charge
receiver should not be appointed over the
property as well as, and independently
of, the administrator, albeit the consent
of the administrator or permission of the
court will be required. It should be noted
that receivers do not have the power to
directly operate trading companies.
So the basic theory is relatively
straightforward. The difficulties of
course only arise when the detail is
applied to live situations.

5. Fixed price receivership
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ABOUT
Anthony founded Jorden Salata, a niche practice focussing on the needs of banks and
lenders, in London over 26 years ago, before recently joining Avison Young along with his team.
Anthony is a chartered surveyor, registered property receiver and registered valuer. His
professional background is in property investment, valuation, development, planning
and Landlord & Tenant issues.
He specialises in advising banks, lenders and insolvency practitioners in resolving property
debt issues by adding value to distressed portfolios, both commercial and residential, either by
taking control on behalf of the bank or by working directly with the borrower.
TRACK RECORD
His team has recently completed the sale of a complex mixed use portfolio comprising 50
properties in the Ropewalks quarter of central Liverpool on behalf of the former Anglo Irish
Bank. The liquidators being KPMG. Over the course of his career he has been instrumental in
the sale of over 1000 properties throughout the UK.
Anthony and his team of valuers and receivers work with Avison Young’s banking and funding
clients to advise on valuations for new lending and also to review existing portfolios. These
same problem solving skills are used to work with Avison Young’s global asset management
professionals to advise global occupier clients and offer a due diligence service to purchasers
of debt portfolios.
MARKET-LEADING EXPERT FOR
RECEIVERSHIP ADVICE AND SERVICES
Anthony is one of only a small number of active registered property receivers in the UK
with such experience. He has lectured widely on dispute resolution, receivership and
property related matters and was privileged to give two of the prestigious Bar/Law Society/
RICS Blundell Memorial Lectures.
He has written articles for The Estates Gazette and was also the author of “Fixed Charge
Receivership – Ironing out Lender & Borrower Misconceptions” published in Corporate
Recovery & Insolvency. As a council member of NARA, he was also the principle author of the
publication“A guide to Property Receivership”.
He is a former Chairman of the Royal Institution of Chartered Surveyors Dispute Resolution
Practice panel and was responsible for arbitration, adjudication, mediation and independent
expert training and its organisation within the RICS.
For many years Anthony has also acted as an arbitrator and mediator in complex property
disputes. Disputed sums have included figures in the order of £150m.
Anthony Salata FRICS MCIArb FNARA MABRP
E: anthony.salata@avisonyoung.com
M: +44 (0)7977 460395
T: +44 (0)20 3440 7624
avisonyoung.co.uk
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